Phew. India’s spate of interest rate rises – carried out against a backdrop of runaway credit growth and bubbles in the property and stock markets – is beginning to bear some fruit. Data published yesterday showed that inflation was starting to ease, with wholesale prices 5.7 per cent higher, on an annual basis, in the final week of March. Does that clear the way for the Reserve Bank of India to bow out? Probably not. The lower inflation rate is flattered by a high base. Moreover, it is still above the RBI’s projection of 5-5.5 per cent. True, there are signs of cooling in the property market and the stock market is some 10 per cent below its February peak. But total lending continues to grow at a 30 per cent clip and domestic demand shows few signs of abating.

Besides, voters typically dislike spiralling prices. While the government is less interventionist than was once the case, it may be tempted to sway the RBI’s hand, given coming elections in Uttar Pradesh, the country’s most populous state. As a big importer of crude oil and other resources, India takes a hit from higher commodity prices. There is a limited number of tools to absorb inflationary pressure. Currency appreciation is a less viable option, with the rupee up some 9 per cent on a trade-weighted basis since the middle of last year and exporters are already grumbling.